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Footwear and Apparel Protection Law Monitor

License Agreement Litigation: Using a Calendar to Avoid the Courtroom

By Brian Lincer on Posted in License Agreement

In many instances concerning license agreements, litigation can be avoided by using something as simple as a your Outlook calendar.  It is amazing to me how many fail to keep a proper calendaring system in place when it comes to deadlines in their license agreement (and other contracts for that matter) and find themselves involved in litigation.  The recent lawsuit filed by an apparel company against will.i.am of the Black Eyed Peas for breaching a license agreement (which allowed the apparel company to use his name and likeness for its clothing line), brings the issue to the mainstream and is a good example.  It appears that both parties are going to pay considerable sums to their legal counsel over the question of whether or not the licensee timely exercised its option to continue the terms of the license agreement.

When it comes to license agreements, there are a minimum of three (3) dates you MUST put into your calendaring system to avoid needless litigation:

1.  The commencement date of the license agreement.  The question of when an agreement legally “commences” is important and not always easy to discern, as it sometimes commences upon the happening of an event.  For example, some license agreements commence upon happenings such as the receipt of fully executed agreements, some type of third party approval or authorization or some other event.  In other instances, the license agreement can commence at some point in the future, whether it be a week or a year from the time you signed the agreement.  Regardless of how your license agreement commences, its date is important to properly note it for the simple fact that many of the other dates of concern regarding the agreement will be based upon the commencement date of the license agreement.

2.  The due date for any notice required for exercising any options in the license agreement.  This date is of extreme importance, in that, if the license agreement requires notice by a specific date and you fail to provide notice by that date, you may lose your ability to exercise any options in your license agreement.  If your license agreement contains an option for a renewal term, the date you must give notice by for the option may be well in advance of the beginning of the renewal term.  In addition to noting the date, you must remind yourself to review the agreement to see (i) how notice is to be sent [regular mail, overnight delivery, etc.] and (ii) to whom notice must be sent to [use the address(es) listed in the notice provision in the license agreement].  It is critical that you do not rely on “actual” notice [stating that the other party knew you are exercising your option so the formalities weren't required].

3.  The date your license agreement expires.  This date will, in many instances, be dependent upon when the license agreement “commenced”.  Aside from the basic reasons for not wanting to produce product for which you may not be able to ultimately sell, there are many reasons why you will want to calendar this date in advance.  One post-expiration issue which arises frequently in licensing litigation is the ability for the licensee to utilize the licensor’s trademarks following the expiration of the agreement.  In the event your “permission” to use the intellectual property ceases, you may be deemed to have infringed upon the licensor’s trademarks or you could be deemed a counterfeiter of the product, which could lead to substantial penalties and sometimes even imprisonment.

If you currently are a licensor or licensee under a license agreement, you must, if you have not done so already: (a) review the entire license agreement to determine what dates are important to note; (b) evaluate and determine how your business should anticipate the events in the license agreement and how much time you need to adequately prepare for the event (for example, how much time you need to give to the manufacturer to produce or not produce the product); and (c) calendar those dates in your calendaring system with reminder notifications so that these dates are always on your radar.  Following these relatively easy steps could save you from needlessly wasting your time and money away in a courtroom.

Product Disparagement: Using State Law to Protect Your Product’s Reputation

By Brian Lincer on Posted in Product Disparagement

At one point or another, if your products are successful enough, someone is going to want to tell the world how awful your product actually is.  With the domination of the internet, it is not difficult for these people to reach a large audience in a very inexpensive and quick manner.  For all of the good that the internet has brought to your business, this could be the one downside that every business will have to deal with.  So the question I get asked from virtually  all of my business clients is, how can I stop this person from disparaging my product?  The reality is that there are a number of legal and business related answers to this question, including starting a state court action, a federal court action, do nothing, make sure you post all positive feedback you receive, etc.  This article covers the elements required to successfully prove a product disparagement action in state court, using New York law as an example.

Each state has specific elements as to what conduct constitutes an actionable claim concerning disparagement of goods.  In most instances, the elements are similar but there are exceptions.  In New York, the person bringing the action must prove (i) a false statement; (ii) about the condition, value, or quality of the product; (iii) which is published to a third person; (iv) with actual malice; and (v) special damages.

(i) False Statement – in the context of a disparagement of goods claim, a false statement can be any statement about the condition, value or quality of a product that is not actually true.  For example, if a product is made in America and a statement surfaces that the product was made in China, this statement would be deemed false and the first element would be satisfied.

(ii) Condition, value or quality – the statement must concern the condition, value or quality of the disparaged product.  It is important to note that the statement must be made towards the product itself, not a person or the business (there are other claims for statements made against people which are not covered in this article).  If, for example, someone posts that you, personally, are a “jerk” and do not know how to run a business, that would not be an actionable statement under a disparagement of goods analysis.

(iii) Published to a third person – this would require publication of the statement, meaning, if someone spoke to someone else on the street, it would not qualify.  However, keep in mind that “published” does not necessarily mean that it must be written, and, if, for example, a news broadcaster makes the statement while on television, it would be considered “published” for the purposes of a disparagement of goods claim.

(iv)  Malice – this is probably the most difficult element to satisfy, as you would have to prove that the statement was made with a bad intention to injure.  Most defendants will claim that the statement was based on their opinion of the product and did not make the statement with the intention to injure.

(v)  Special damages – the “special damages” aspect of the claim requires that the person or entity bringing the claim plead and ultimately prove the specific loss of business that resulted from the disparaging statement.  In some instances, a court will require that you must specifically name the customers lost as a result of the false statement.  However, in certain situations where the exact identity of the lost customers cannot be accounted for, you may be able to successfully prove a product disparagement claim by other means.  The idea here is that your alleged damages cannot be speculative and cannot assume losses without being proven.

Who may bring the claim?  In addition to the manufacturer of the product, a product disparagement claim can, in certain instances, be initiated by distributors of the disparaged product, importers of the disparaged product, retailers selling the disparaged product or licensees associated with the disparaged product.

What can you do to strengthen your state product disparagement claims before they happen?  When (not if) someone does disparage a product that you are somehow associated with, the information your business maintains could mean the difference between success and failure.  It is critical that you make it your organization’s policy to maintain the following information:

1.  Product Quality Information.  All information concerning the condition, value or quality of the products.  This may include lab reports, durability testing, component information, positive product testimonials, etc.  This information will be required to dispute the false statement made.

2.  Detailed Customer Information.  Detailed customer information will be helpful to prove the malice element of the claim and special damages in the event you are required to show that you lost certain customers after the false statement was published.

3.  Detailed Financial Information.  Detailed financial information will be needed to successfully plead the special damages portion of your claim as the specific losses resulting from the false statement will have to be proven in order to recover.

All the “T” in China: 5 Factors to Consider When Contemplating Trademark Protection in China

By Brian Lincer on Posted in Trademarks

With all of the headlines concerning the recent trademark problems of major companies in China, I have been receiving questions from our clients to ask the question: Does it make sense for our organization to seek trademark protection in China?  To get to the correct answer, you must go through the exercise of weighing the costs and benefits of obtaining trademark protection in China.  The following is brief list of some of the factors you should consider:

1.  The Extent of Your Business in China.  Perhaps the biggest factor you would need to consider is whether or not your organization has any business ties with China.  What I mean by business ties is whether or not your product is either manufactured in China, whether certain components of your product are manufactured in China, whether your product is sold in China and/or whether or not your product is imported from China.  Your relationship with China is important to consider because, in the event you are unable to either enforce your trademark rights in China or someone else enforces their Chinese “trademarks” against you, your products could essentially be held hostage by the other organization.  In essence, a Chinese court has the authority to halt the export of your product until the issue is resolved.  This “widgetnapping” of your product will force you to pay a very high “ransom” to free your products from their captors.  In the event your organization has no business ties to China, the Chinese authorities will have limited jurisdiction and ability to affect your business.

2.  The Future of Your Brand in China.  Nobody can predict the future but most successful business owners do have the ability to envision where their organization will be in the next year, 5 years and maybe even 10 years.  The best way to prevent the Chinese “trademark squatting”, as it has been called lately, is to preemptively establish your rights in the country before any issues arise.  China is an emerging market and, even if your manufacturing process does not involve China today, you may one day find yourself either selling your product to the people of China and could subject your organization to the irrationality (as it appears to be now) of China’s trademark authorities.

3.  The Popularity of Your Brand.  Some of the current Chinese trademark headlines concern organizations that legitimately use the same or similar trade names for their businesses and are entitled to trademark protection in China.  Others, however, are “squatting” and waiting in an effort to profit from a desperate situation that they create.  The purpose of the “trademark squatters” is to establish a brand presence in China so that you will pay a premium to somehow “purchase” (or pay ransom) the brand rights from the squatters.  The incentive to the trademark squatters is strictly financial.  If they believe that you have the financial ability to pay, you are a possible target.  Although there is no hard numbers to go by, if your sales are not great, you are probably too small a fish and will likely be ignored by most “squatters” for the moment.  That is not to say that you couldn’t perform up to the “squatters’” standards in the future, but you may want to hold off on the expense of filing your trademark applications in China for now.

4.  Relationship with Brand Name and China.  In certain cases, product brands have an “association” with China, even if the brand owner has no business ties with China.  For example, if your organization sells apparel with a brand named “Shanghai”, you are probably going to run into some legitimate trademark issues overseas.  Prior to utilizing a brand associated with a Chinese term, you may want to conduct a comprehensive trademark search in China before doing so.

5.  Expense.  Obtaining trademark protection in China is not easy and it is not cheap.  Due to the complexity of the language, translation and structure of the Chinese trademark system, multiple variations of each mark must be filed in order to obtain protection.  See “3 Things to You Need to Know Before Filing a Trademark Application in China”.  The multiplicity of trademark applications causes the process to be much more expensive then filing in the United States alone.  If you are on a really tight budget, you may not be able to proceed due to financial restraints.

Being a lawyer who has seen the different results for those organizations that have adequately protected themselves before an issue arises versus those that have not, if I had my choice in all cases, I would try to obtain trademark protection in as many places as possible.  However, I also understand that this approach is not practicable for many businesses out there and decisions have to be made as to where the best application of their resources will result in the biggest return.  The above are some factors you should consider but each organization is different and requires a specific analysis to get the right answer.

Can Your Business “Approach” Be a Protectable Trade Secret?

By Brian Lincer on Posted in Trade Secrets

Under California law, a “trade secret” means information, including a formula, pattern, compilation, program, device method, technique, or process, that (a) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Recently, in Gabriel Technologies v. Qualcomm, the plaintiff argued that its “approach” to handling a problem within its organization should be designated as trade secret and fall within the definition above.

When dealing with trade secrets it is normally the information itself that becomes the protecable trade secret, as opposed to a process or design concept. However, courts have been willing, in certain circumstances, to extend trade secret status to certain approaches, ideas or concepts. Ultimately, the court in the Qualcomm case ruled that a “unique approach to a problem can constitute a process that is a protectable trade secret” and found that the plaintiff’s approach to solving a problem within its company did constitute a trade secret.

Although not earth shattering, this decision demonstrates the importance of (a) knowing what information, processes or concepts are potentially protectable within your organization and (b) knowing how to protect those secrets within your organization to thwart competition and keep the upper hand. 

Using the Anticybersquatting Protection Act to Protect Your Brand

By Brian Lincer on Posted in Cybersquatting, Trademarks

In a recent decision, Chanel was awarded the transfer of seven domain names established by a counterfeiting enterprise by bringing claims under the Lanham Act and the Anticybersquatting Consumer Protection Act (“ACPA”). When dealing with counterfeiters, the ACPA is a necessary tool to assist in shutting down the counterfeiters’ web presence and can mean substantial awards being tacked on if successfully proven.

What is the ACPA?

A claim under the ACPA can be established if a person or entity (a) registers, traffics or uses a domain name (2) that is identically or confusingly similar to a distinctive or famous mark (3) with a bad faith intent to profit from that mark. The first two prongs of an ACPA are not difficult to establish. By doing a cursory review of the domain name and establishing who it is registered to, you can establish, in most cases, that the person or entity used the mark and they are similar or identical to the distinctive mark. For example, in the Chanel case, the defendant registered the domain names “cheap-chanel-shopping.com” and “chanel-gucci-lousvuitton.com”. It is pretty clear that the identical Chanel trademarks were used directly in the domain names. Proving “bad faith” under the ACPA is not as easy.

Bad Faith Analysis Under the ACPA

The ACPA has a “safe harbor” provision which states that a person or entity will not be liable under the ACPA if they believe, and have reasonable grounds for the belief, that their use of the domain name was lawful. Due to this “safe harbor” rule, the courts typically will have to evaluate the “bad faith” element in detail. The ACPA provides a nine part list of factors to consider when evaluating bad faith under the ACPA, which include:

i.    the intellectual property rights of the domain registrant in the domain name;

ii.   if the legal name of the domain registrant is used in the domain name;

iii.  prior use of the domain name;

iv.  the domain registrant’s bona fide fair use of the domain name;

v.   the domain registrant’s intent to divert traffic to a site that harms the trademark owner’s goodwill;

vi.  the person’s offer to sell the domain name to the trademark owner for profit;

vii.  false ownership information provided by the domain registrant;

viii.the purchase of other domain names that infringe on others trademarks; and

ix.   the distinctiveness or fame of the infringed upon trademark.

This is not an exhaustive list and a court may look to other factors to analyze bad faith under the ACPA.

Why is the ACPA Important to Your Company?

Cyberpiracy is a growing problem for all companies as the internet becomes the preferred shopping method for consumers throughout the world. The footwear and apparel industry is particularly targeted by cyberpirates due to the ever increasing counterfeiting of fashion related products. A claim under the ACPA should always be included in a trademark infringement action where a domain name is used as a vehicle to further the infringing conduct. In certain instances, a trademark infringement action under the Lanham Act can be summarily dismissed for certain reasons and the ACPA may be your only weapon against the infringing conduct. Additionally, statutory damages under the ACPA can be as high as $100,000 per domain name. In certain cases, cyberpirates will register multiple domain names which can lead to a substantial damages award.

iPad Trademark: Trouble in China

By Brian Lincer on Posted in Trademarks

It is being reported that a Chinese court recently rejected Apple’s trademark claim to the “iPad” trademark in China. Proview Technology, a Chinese company, marketed a tablet-like computer in China and obtained a register trademark for “IPAD” as it relates to computers for the years 2000 to 2004. In 2010, Apple applied for the “iPad” trademark and has received opposition from Proview Technology as to the rights and priorities of the “iPad” marks. In my opinion, Apple will have no choice but to appeal this decision to the fullest extent allowed by Chinese law.

The one lesson to be learned from Apple’s unfortunate situation is that it is extremely important to seek trademark protection in all countries/territories you conduct business in. It is vitally important to obtain trademark protection in China (or wherever your products are manufactured) as we have come across numerous situations similar to Apple’s where our clients were “held hostage” as a result of claims to ownership of Chinese trademarks that mirrored our clients. It is important to keep in mind that that your trademark registration with the United States Patent and Trademark Office alone does not protect you outside of the United States. You can increase your protection throughout the world by filing Madrid Protocol applications or filing in the foreign country directly.

Pittsburgh Steelers’ Terrible Towel Deemed Famous Trademark

By Brian Lincer on Posted in Trademarks

In a recent decision, the United States District Court of the Western District of Pennsylvania, decided that the Defendant’s use/attempted use of “The Terrible T-Shirt” as it relates to the Pittsburgh Steelers football team, infringed on, what the Court believes is the Steelers’ [actually owned by non-profit organization but Steelers have exclusive rights] famous “Terrible Towel” trademark. It seems obvious that the Court ultimately made the right decision concerning the defendant’s infringement and granted summary judgment in favor of the Steelers. What is interesting about this case is how the court determined that the Terrible Towel trademark was a “famous” trademark and how you can use this analysis to attain famous trademark status.

Having a “famous” trademark affords the most trademark protection a brand can have. For example, the trademark “Kodak” is often used as an example of a “famous” trademark, in that, the term is authentic and consumers automatically connect it to camera products. Obtaining a famous trademark should be the goal for every brand. The question becomes, how do you get from first use to a famous trademark. The following list of three is a good place to start:

1.   Distinctiveness. When choosing a brand name or trademark for your product, service or company, you must be cognizant of the fact that the more distinct your brand name is, the “stronger” your mark will be and the “fame” associated with it will be attributed to your efforts in promoting the brand name. In the case of the “Terrible Towel”, for example, the Court pointed out that the “Terrible Towel” does not describe the products to which they apply and the only connection stems from the “fame” of the mark that was created. Had the name been “Steelers’ Towel” or something more descriptive, it is possible that the mark would not be found to be famous.

2.   Advertising and Public Efforts. The Court stated that the marks, through years of advertising and public efforts, including (i) televised Pittsburgh Steelers football games throughout the country; (ii) media articles about the Terrible Towel; (iii) distribution of the Terrible Towels through numerous outlets, etc. made the Terrible Towel mark famous. Interestingly, the Court believed that the six pages devoted to the Terrible Towel on Wikipedia was also relevant to the fame of the mark. It makes sense to use the amount of Wikipedia content as a factor in assessing your brands’ fame and a good barometer that your trademark’s fame is increasing. As we move forward into the future, I believe that the internet content attributed to the mark will be more of a factor when assessing a “famous” mark and you should gear your marketing efforts accordingly.

3.   Time. Usually, it takes a very long time of constant attention to obtain a famous trademark. In the case of the Terrible Towel, the Court noted that the mark was in use for approximately 35 years. As you are using the mark in commerce, it is important to maintain your registrations and police [and enforce when necessary] others attempting to utilize the mark.

Brand Expansion: 5 Things You Need to Know When Expanding Your Brand

By Brian Lincer on Posted in Agreements, CPSC (US Consumer Product Safety Commission), Employee/Contractor Issues, Trademarks

You have been in business for a couple of years and all your efforts have begun bearing fruit. Your brand has become well recognized in the industry and you have decided to apply your brand to other items, hoping that you will have similar results. When it comes time to expand your brand into other areas, you must be aware of certain potential legal pitfalls that you may come across prior to this expansion. In some cases, expanding your brand can be tantamount to starting a new business altogether. Many of our clients, when expanding their brands to other product or service classifications, are unaware that each product has its own potential legal concerns that need to be addressed. The following are five critical legal elements that you must consider prior to expanding your brand.

1.  Trademarks. When you or your attorney initially filed your trademark applications, the trademarks were associated with certain goods or services (called “classes”). The trademark protection afforded by the initial application will, typically, only be associated with the goods or services as set forth in the application. For example, clothing and footwear are listed under International Class 25. If your business initially comprised of selling shirts only, your trademark application will most likely be filed with the use specified for goods in Class 25. Now that your brand has become well known, you are looking to expand your logo and associate your brand with cosmetic goods. Cosmetics, although somewhat associated with the fashion industry, are in a separate class, International Class 3. Although an argument can be made that cosmetics are within the “natural expansion” of goods associated with fashion, you can avoid any issues by filing a new trademark application for cosmetics. The idea being that you want to avoid the need for any needless litigation and wasting resources on fighting an issue that could have been expeditiously resolved by filing a new application. In the event that you are still in the planning phase, you can (and should) file an intent to use application for the expanded goods.

2.  Insurance. Hopefully, your insurance broker has informed you of all of the potential risks associated with being a manufacturer, distributor or retailer of certain goods and you have ample coverage for your business concerns. One issue I find that is frequently overlooked by most companies when expanding is that they fail to (a) advise their insurance company that they will be selling “different” items; and (b) obtaining additional coverages for the new products that they are selling. Insurance companies will often look to disclaim coverage when possible. Many insurance policies have clauses within them stating that, if you change your business in any way, you must timely notify them in advance of any claims. If a claim arises as a result of the new product, your insurance company will attempt to disclaim your insurance coverage based upon the fact that you did not properly notify them in advance of selling the new product. Additionally, some products sold need to specific insurances to cover potential claims. For example, if you began your business by selling only apparel related products and are looking to expand into sports equipment, you must obtain specific coverages that would cover you in the event of an injury related to a malfunction in the equipment. If you fail to do so, any claims associated with the sports equipment will be disclaimed and you will have to pay for the claim out of pocket.

3.  Labeling and Compliance. Many products have unique labeling issues that must be scrutinized prior to selling the product. Likewise, each product has specific government compliance related issues that must be addressed. Being familiar with certain industry standards for one type of product does not automatically convert into knowledge into another product. For example, you are a footwear manufacturer and have been selling sneakers for a number of years under a certain brand. Due to the increased demand for “environmentally friendly” products within the industry, you decide to expand your brand into a sneaker which is 100% made from recycled material. Your advertising makes numerous environmental claims which you believe are accurate and do not mislead consumers. What you need to be aware of is that the Federal Trade Commission has certain rules against making environmental claims and what you need to substantiate those claims. Being unfamiliar or unaware of these rules and failing to comply with them, can lead to major problems and the wasted resources.

4.  Corporate Entity. To limit the potential liability of your existing business, it may be beneficial to create a new entity to control the new product line. Operating your expanded product line through another entity will shield your current operation (in most cases) from liability resulting from the expanded business enterprise. Forming a new entity, however, may have certain tax-related implications that could override the benefit of the limited liability. A specific fact-based analysis with your attorney and accountant should be done to make this determination.

5.  Agreements. Your agreements may be specifically geared towards a certain product and the addition of a new product line may add to confusion and litigation. For example, if you have entered into an exclusive distributorship with another entity, it may not be clear if the new products would be part of the distributor’s exclusivity. Should you want another distributor to handle the distribution of the new product line, will your current distributor demand entitlement to sell the new product line? Reviewing your agreements, and amending them when possible, prior to your brand expansion is critical to avoid additional issues.

 

Secondary Meaning: The Importance of Strengthening Your Trademark

By Brian Lincer on Posted in Trademarks

When it comes to analyzing a trademark, a deciding body (whether it is the United States Patent and Trademark Office or a court) will, when reviewing certain types of trademarks, look to the “strength” of a trademark to determine its validity or whether the trademark is enforceable. Increasing the strength of your brand is not only a good business strategy, it can mean the difference between obtaining trademark protection and not. Knowing this in advance, we encourage all of our clients to take a proactive approach in the event the strength of the trademark is ever scrutinized.

Secondary meaning

At the outset, it is important to know what the governing body will look to when making the determination of the strength of your mark. The courts will normally analyze a trademark’s strength by determining if the trademark acquired “secondary meaning”. A trademark acquires secondary meaning when it is proved as a matter of fact that the mark connotes a single source of origin to the public consumer”. The courts will generally look to the following six factors (sometimes referred to as the “Centaur factors”) to make this determination:

i.     Your advertising expenditures,

ii.    Consumer studies linking the mark to you,

iii.   Unsolicited media coverage of your product/service/company,

iv.   Sales success of your product/service/company/product,

v.    Attempts by others to plagiarize your trademark, and

vi.   Length and exclusivity of your use of the trademark

Taking steps to strengthen your mark

Knowing the factors a court will use to determine your trademarks strength is half the battle. The more important step you need to take is to preemptively strengthen your brand recognition so that you can demonstrate the strength of your trademark if it is ever scrutinized. Spending money on advertising will certainly demonstrate that you have been actively applying resources to your brand and this factor weighs heavily in the analysis. In addition to spending marketing dollars (which may not be practical for all), it is important to document and maintain any information that may help in this analysis throughout the course of your day-to-day business, such as, any media coverage (regardless of how insignificant you think it may be), examples of your use of the trademark to demonstrate the duration of your use and any attempts by others to use the mark.

Google factor

Although search engine rankings are not directly referred to on the “list” above, some courts have taken organic Google results into account. In my opinion, the courts will increasingly use search engine rankings as a factor in determining a trademark’s strength. Although sometimes skewed, page rankings are a good indication of how relevant your company or product is in relation to the keyword search term. Increasing your page ranking in relation to your brand will help strengthen your trademark and there are ways to do this without spending large sums of money on advertising (which would probably fall into the first of the Centaur factors). Google will also play a role in analyzing whether others are attempting to plagiarize your trademark by using your trademark as a meta tag or other meta data.

Employee Handbook to Employment Contract

By Brian Lincer on Posted in Employee/Contractor Issues

Why is the language of the employee handbook important?

When properly written, employee handbooks can be a very useful tool in your organization and allow a company to set forth certain expectations, rules, goals and obligations of its employees. Unfortunately, for many organizations, when the fine line between employee handbooks and employment contracts becomes blurred due to poor drafting or a change in law, organizations find themselves in a legal battle over whether their “at will” employee became a contract employee due to language in the employee handbook.

Employee handbook: Not just a “guide”

Many of our clients [before retaining our firm] did not realize the severity and scrutiny placed upon employee handbooks until it was too late. Some of our clients used a template form they obtained over the internet without having the document reviewed by an attorney before giving it to their employees [if you fall under this category, it is strongly suggested that you contact qualified legal counsel immediately and have it reviewed]. When asked why, the response usually is that they did not realize that this is a contract and viewed it more like a human resource department related guide.

Monitoring employee handbook decisions

In an effort to minimize exposure to a claim against our clients, we continuously monitor legal decisions from around the country concerning an employee’s attempts at converting their company’s employee handbook into an employment contract. From viewing a court’s rationale concerning the employee handbook after scrutinizing its terms, we are able to formulate an employee handbook that is substantially less likely to be deemed an employment contract. Similarly, we can see how the plaintiffs are arguing their claims and assume that others will make similar arguments.

Grove v. Loomis Sayles & Company

In a recent Washington, D.C. decision captioned Grove v. Loomis Sayles & Company, L.P., the plaintiff argued that, despite the general “at will” employment disclaimer on the employee handbook, there was in fact an express contract between her and the defendant. Specifically, the plaintiff set forth a breach of contract claim on a seemingly innocuous provision in the employee handbook entitled “Circulation of Job Openings” which, in short, stated the defendant’s preference of promoting from within the organization. The argument was that she was laid off and not offered an open position in another state. The United States District Court for the District of Columbia, analyzing the specific language of the “Circulation of Job Openings” clause, did not believe that it created a mandatory duty on the employer and only imposed certain requirements on the employees.

Permissive language

The “take away” from this case is that by utilizing “permissive” terms and adding language making the job openings subject to “management’s reasonable discretion” the company was able to avoid crossing over into employment contract territory and ultimately, the court ruled that the employee handbook did not give rise to any enforceable contract rights and dismissed the plaintiff’s case. Had the language been slightly altered, the result could have been painfully different for the company. Each sentence in an employee handbook matters and it is vital to assume that your employee handbook will likewise be scrutinized at some time in the future.